Directive 2001/37/EC - the Portuguese experience concerning the manufacture, presentation and sale of tobacco products Alexandre Simões – Senior Customs Officer EXCISE DUTIES DEPARTMENT TAIEX - Belgrade of March 2013

Structure 1 - Presentation 2 - Production and manufacture of tobacco products; 3 - Movement of Tobacco; 4 - Importation of tobacco products; 5 - Presentation and sale; 6 - Conclusion.

 Portugal State Agency  Ministry of Finances  Tax and Customs Authority  EXCISE DUTIES DEPARTMENT Responsible for tax control on: - Alcohol, alcoholic beverages - Manufactured tobaccos - Petroleum and energy products - Vehicles

Portuguese tobacco LEGISLATION: - Tax Legislation on Tobacco (Decree on Law 73/2010, that approved the excise products Code) -Health Legislation (Decree on Law 25/2003, that approved the tobacco law) based on EEC Legislation (Directives): Tax general regime – Directive 118/2008/EC, concerning the general arrangements for excise duty Tobacco Taxation – Directive 2011/64/EU, on the structure and rates of excise duty applied to manufactured tobacco Health – Directive 2001/37/EC, on the approximation of the laws, regulations and administrative provisions of the Member States concerning the manufacture, presentation and sale of tobacco products

II- Production and manufacture of tobacco products According to Directive 118/2008/EC, each Member State shall determine its rules concerning the production, processing and holding of tobacco. However, the production of tobacco products shall take place in a tax warehouse. In Portugal, the tax warehouse and the authorized warehousekeeper are subject to authorization by the Tax and Customs Authority. Authorized warehousekeeper: a natural or legal person authorised by the authorities to produce, process, hold, receive or dispatch tobacco products under a duty suspension arrangement in a tax warehouse.

I- Production and manufacture of tobacco products The Authorised warehousekeeper is required to: Provide, if necessary, a guarantee to cover the risk inherent in the production, processing and holding of tobacco products: In Portugal, it’s only necessary for holding; Keep accounts of stock and movements of tobacco products; Consent to all monitoring and stock checks. Suitable reputation of managers and administrators: - No conviction of tax crime (or fine over € 5,000) in the last five years; - No tax or social security debts.

II- Production and manufacture of tobacco products System of Control for Production Tax Warehouses on Tobacco Products: The tax warehouses for tobacco production are subject to a control system, based on the accounting elements of the economic operator; The law establishes specific reporting obligations, to comply with electronic data transmission; Therefore, the authorised warehousekeeper should adopt rates of yield and ensures the implementation of necessary IT systems. Rate of yield: the quantity or percentage of cigarettes obtained from the processing of a given quantity of tobacco raw material.

II- Production and manufacture of tobacco products Every day, the authorised warehousekeeper shall declare the accounting elements in order to identify the quantities of raw materials consumed and the corresponding output of cigarettes in all phases of the manufacturing process. For example: 1 Ton of tobacco raw material Y production original mixture X production final mixture Z quantity of cigarettes W cigarettes Packs. Is deemed to have been released for consumption all cigarettes that match the raw materials consumed during the process manufacturing that exceed 2% of the declared production.

II- Production and manufacture of tobacco products Tabaqueira S.A. (Philip Morris International - PMI) Tabaqueira S.A. (Philip Morris International - PMI) one of the eight factories of PMI in Europe

III - Movement of Tobacco products Tobacco Economic Operators: Registered consignee: Registered consignor: Tax warehouses - Authorized warehousekeepers ‘ registered consignee’ means a natural or legal person authorised by the competent authorities of the Member State of destination, in the course of his business and under the conditions fixed by those authorities, to receive excise goods moving under a duty suspension arrangement from another MS;

III - Movement of Tobacco products The movement of Tobacco Products under suspension of Excide Duty, is allowed from a tax warehouse to: (i) another tax warehouse; (ii) a registered consignee; (iii) exportation; Local customs allows and register all the operators in the electronic system SEED DATA BASE. Tax and Customs Authority control their activities and the regular fiscal situation of tobacco products

DEPARTURE CONSIGNEE MEMBER STATE OF DISPATCH DESTINATION CONSIGNEE MEMBER STATE OF DESTINATION 1. Consignee sends e-DA 2. e-DA is validated by MS of expedition. 3. Movement 4. MS of expedition sends e- DA to MS of destination 6. Tobacco arrives to destination 7. Consignee of destination o Report of Receipt (RoR) 8. MS of destination validates RoR and send it to consignee 9. MS of destination sends RoR to MS of expedition MS of destination send e- DA to consignee of destination 8 End of operation

IV – Importation of tobacco The importation of tobacco products is allowed if the products comply with Directive 2001/37/EC. For that purpose, tobacco products must respect the limitation of the tar, nicotine or carbon monoxide yields of cigarettes, health warnings and other indications of the Directive and Portuguese Law (must have a special stamp in order to be sold legally). From a third country, tobacco having no commercial character can be imported free, if in one personal luggage, within the following limits: cigarettes or 40 cigarettes; cigarillos or 20 cigarillos; - 50 cigars or 10 cigars; grams of tobacco or 50 g smoking tobacco.

V - Presentation and sale Before being put to sale, tobacco products must comply with tobacco legislation, namely: - Labeling and health regulation (vg. Articles 5, 6 and 7 of Directive 2001/37/EC; - Stamps and other tax legislation. In Portugal, Tax and Customs Authority is the competent State agency for licensing new tobacco products. Tobacco products must satisfy all the legal conditions required, including the information regarding the product characteristics and the retail selling price.

V - Presentation and sale New brands of tobacco, or any changes in existing brands, must first be communicated to Tax and Customs Authority, at least 30 days advance. The economic operator shall state the following elements: a) Brands features, including packaging, wording modules and sale; b) Physical characteristics of the product; c) Contents of condensate and nicotine; d) The retail selling price. Traders who sell tobacco products for exportation should indicate the retail selling prices that would be charged if the products were intended to be released in consumption in Portugal.

V - Presentation and sale The proposed new brands can be refused by Tax and Customs Authority if compliance with the legal provisions is not proved, including: - Health warnings; - Mandatory limits of tar, nicotine and carbon monoxide yields; - Retail selling price proposed not accepted.

V - Presentation and sale  Warnings and labeling: Tobacco products intended for consumption in Portugal should contain printed in a visible place on their packaging: -Name of the manufacturer; -Brand; -Retail selling price to the public in the territory of consumption; -Health warning message; -The number of units or the net weight in the case of tobacco smoking; -In case of cigarette packets, the levels of tar, nicotine or carbon monoxide. The manufacturer can also put a batch numbering or equivalent, on the unit packet, to ensure product identification and traceability.

V - Presentation and sale Special Stamps: In Portugal, the manufactured tobacco must have a special stamp in order to be sold legally. This stamp, though not actually being a tax stamp, allows the Portuguese Customs to verify if the tobacco product has paid the excise duty.

SPECIFICATIONS With 2 security elements: Hologram Alphanumeric figures (1st letter for the year, 2nd for a serial identification, and the following 7 digits as a sequential number for its identification by year) Control Electronic System SIC – ES Electronic Accounts : use and destiny of the fiscal stamps by trader from acquisition to consumption (accessible to the trader and custom) TAX STAMP SYSTEM

V - Presentation and sale Taxation because of Fiscal stamps The supply of these stamps is committed to INCM (the official government printers and mint producers) and controlled by the Tax and Customs Authority. All the use of the stamps must be legally justified, otherwise, the trader who asked for the stamps must pay the correspondent excise duty.

V - Presentation and sale Exceptional prohibitions: Tobacco products with Mainland stamps should not be consumed in the Autonomous Regions, and vice versa, or sold in a Autonomous Region if destined to another. For example, is prohibited to sell tobacco with Madeira’s stamps in Azores and vice versa. It is also prohibited the holding by individuals of manufactured tobacco products that do not bear a valid special stamp in larger quantities than 800 units, or 2 kg (depending whether cigarettes or other tobacco products). The prohibition covers distance selling of tobacco products, by post or equivalent means.

VI- Conclusion The Portuguese Tax and Customs Authority has high responsibilities in ensuring the enforcement of tobacco law and regulation, whether in production, importation, movement or public sale. Along with health concerns, new risks emerge related to increased smuggling and counterfeiting of tobacco products. Finally, new challenges arise as online and distance selling are difficult to control. It is required strong and coordinated action at European and international levels.

Thank you!